September quarterly investment update
With Brendan Casey, Rest's General Manager, Investment

Financial markets proved remarkably resilient in the September quarter, with US stocks reaching new highs. Ongoing US-China trade tensions and rising interest rates, as well as a cooling housing market here at home, may signal risks on the horizon.


Rest’s Core Strategy posted another solid quarter, with gains of +2.22% for the period ending 30 September 2018. Over the last 12 months, the Core Strategy has returned +9.36%, well above its return objective of CPI + 3%.

Once again, overseas shares were the largest contributor to returns. There were also notable positive contributions from property, and growth alternatives1.

From strength to strength

Financial markets proved remarkably resilient in the September quarter. Despite escalating US-China trade tensions, the prospect of higher interest rates, turmoil in emerging markets, and ongoing geopolitical risks, investors showed few signs of unease.

Sharemarkets globally, led by the US, continued to move higher while volatility measures remained subdued.

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America first

International shares, as measured by the MSCI All Country World ex Australia Index (unhedged in AUD), rallied some +7.4% over the September quarter, and an impressive +21.1% over the year ended 30 September 2018. Leading the way, US stocks reached new highs, with the S&P 500 posting a 7.7% gain over the quarter, its strongest quarter since 2013. This is also up more than 14% since early February, when stocks fell sharply in reaction to worries rising US interest rates could abruptly end the expansion.

In the US, a remarkably buoyant economic backdrop (record low unemployment, multi-year high wage growth and rising consumer confidence) on the back of pro-growth government policies continues to benefit corporate profitability and encourage business investment. At the same time, US inflation remains fairly well contained despite the sharp pick up in oil prices, which supports the case for a gradual approach to future rate hikes.

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An Australian housing correction we had to have?

After a strong June quarter, Australia’s S&P/ASX300 Accumulation Index added a more modest +1.2% over the quarter, and +14% over the year ended 30 September 2018 - underperforming major global peers.

Recent economic growth and jobs data in Australia has been strong, but higher petrol prices and softer home prices may weigh consumer spending. We may see acceleration in the decline of Australian house prices as the recent Royal Commission clamps down on bank lending standards.

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A September to remember

Ten years ago this month, the world witnessed the collapse of US investment bank Lehman Brothers, a cataclysmic financial market event which ultimately led to the Global Financial Crisis (GFC).

Ten years later, it’s still not clear if lessons from the GFC have been learned. After a decade of emergency low interest rates, global debt levels are back at all time high levels, while shares (and other asset class) valuations are back above pre-GFC levels.

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As good as it gets?

Globally, growth remains solid. US growth particularly remains robust, underpinned by a healthy labour market and strong consumer confidence. The US recovery is now the second longest on record. But, economic expansions don’t last forever. While there’s little to suggest this recovery will quickly come to an end soon, we shouldn’t be complacent.

Ongoing US-China trade tensions, as well as inflation and interest rate hikes thanks to too-strong US growth, could pose a key threat to the economic outlook. In Australia, record household debt and a cooling housing market are good reasons to stay vigilant.

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Looking ahead

At Rest, we place a strong emphasis on protecting members’ investments against adverse economic and investment risks, and preserving their super savings through the ups and downs of investment cycles.

Given the many risks on the horizon, we see good reason to keep our relatively defensive Core Strategy positions in place. Rest currently holds around 42% of the Core Strategy in Australian and overseas shares.

Around 13% of the Core Strategy remains in cash to ensure we are well positioned to take advantage of opportunities as markets correct.

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Rest performance results to 30 September 2018*

Superannuation - Core Strategy option
3 month (%) 1 Year (%) 10 Year (%pa)
2.22 9.36 7.90
Balanced option (REST Pension)*
3 month (%) 1 Year (%) 10 Year (%pa)
1.79 7.21 7.43

Rest performance results to 30 September 2018*

Rest pension performance results to 30 September 2018*

1 Growth Alternatives comprise of Credit (credit or debt securities typically issued by corporations and governments), Equity Strategies (investment in equity related strategies), Private Equity and Agricultural investments.
 
This material is current as at September 2018 but may be subject to change. This information doesn’t take into account your circumstances. So, before acting on it, you should consider whether it is appropriate for you. Before making a decision about your super, please read the relevant Product Disclosure Statement at rest.com.au/pds or call 1300 300 778. Rest has no relationships that might influence our advice to you. Rest does not pay or receive commissions. This information is provided by the issuer, Retail Employees Superannuation Pty Ltd ABN 39 001 987 739, AFSL 240003 as trustee of Rest (Retail Employees Superannuation Trust ABN 62 653 671 394).
 
* Returns are net of investment fees and tax, except Pension which is untaxed. Three month returns are not annualised returns. Returns for the ten year period are annualised returns. Past performance is not an indicator of future performance. For more investment information including the latest investment returns visit rest.com.au/investment.
 

This website is provided by Retail Employees Superannuation Pty Limited ABN 39 001 987 739, AFSL 24 0003, trustee of Retail Employees Superannuation Trust ABN 62 653 671 394, of which Rest Super, Rest Corporate, Rest Select, Rest Pension and Acumen are part. It contains general advice that has been prepared without taking account of your objectives, financial situation or needs. Before acting on the information or deciding whether to acquire or hold a product, consider its appropriateness and the relevant Product Disclosure Statement (PDS), which is available on this website.

Rest Advice is provided by Rest advisers as authorised representatives of Adviser Network Pty Limited AFS Licence 232729 ABN 25 056 310 699

Awards and ratings are only one factor to consider when deciding how to invest your super. Further information regarding these awards can be found at Rest.com.au/about-Rest/awards. Past performance is not an indicator of future performance. SuperRatings Pty Limited does not issue, sell, guarantee or underwrite this product. Go to www.superratings.com.au for details of its ratings criteria. For further information about the methodology used by Chant West, see www.chantwest.com.au